Centrica Plc and another v Premier Power Ltd

JurisdictionEngland & Wales
CourtQueen's Bench Division (Commercial Court)
Judgment Date19 January 2007
Neutral Citation[2006] EWHC 3068 (Comm),[2007] EWHC 3292 (Comm)
Docket NumberCase No: 2005 Folio 72,Case No: 2005/72
Date19 January 2007

[2006] EWHC 3068 (Comm)




Royal Courts of Justice

Strand, London, WC2A 2LL


Mrs Justice Gloster, Dbe

Case No: 2005 Folio 72

Centrica Plc & British Gas Trading Limited
Premier Power Limited

John McCaughran Esq, QC and Sa'ad Hossain Esq (instructed by Ashursts) for the Claimants

Jeffery Onions Esq, QC and Daniel Toledano Esq (instructed by Denton Wilde Sapte) for the Defendant

Hearing dates: 7th & 8thJune2006; 12th 14thJune2006; and 20thJune2006

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.


Mrs. Justice Gloster, DBE:



In this action the Claimants, Centrica PLC ("Centrica") and its wholly-owned subsidiary, British Gas Trading Limited ("BGTL"), make certain claims against the Defendant, Premier Power Limited ("PPL") under or in relation to a long term gas supply agreement dated 1 April 1992 ("the GSA"). As a result of a transfer scheme in 1996, made pursuant to the provisions of the Gas Act 1995, and a demerger and assignment in February 1997, the GSA is now a contract between Centrica as seller and PPL as buyer. The GSA provides for the supply of gas by Centrica to the Ballylumford Power Station, which is situated on the Antrim Coast of Northern Ireland, near Larne and which is owned and operated by PPL. BGTL has at all material times performed the GSA on behalf of Centrica.


The GSA is what is known in the industry as a long term interruptible gas supply agreement (or "LTI" for short.). The terms of the GSA provide that it will last for a period of 12 years from the defined Start Date (1 April 1997) until 31 March 2009. By the terms of a side letter dated 30 March 1992, PPL was given the option to extend certain of Centrica's transportation obligations for a further three years until 2012.


The gas to be delivered to PPL under the GSA has to be transported from the junction of the UK National Transmission System ("NTS") system at Moffat, Dumfriesshire, Scotland, via Twynholm in Scotland, through a pipeline, part of which runs under the Irish Sea, to the Ballylumford Power Station in Northern Ireland ("the Pipeline"). The section of pipeline between Moffat and Twynholm is, and was at all material times, owned and operated by Bord Gas Eireann ("BGE"), and is part of a pipeline which is used to deliver gas to the Republic of Ireland, near Dublin. At the date of the GSA, the remainder of the Pipeline (i.e. that portion from Twynholm, to the Scottish coast, under the Irish Sea and then to Ballylumford) had not yet been built. British Gas plc ("British Gas"), the original seller under the GSA, established a subsidiary, Premier Transco Limited (which was later renamed Premier Transmission Limited) ("PTL") to build, own and operate the Pipeline. It was anticipated that deliveries of gas under the GSA would not begin until 1996. That in fact occurred: first deliveries of gas began in late 1996.


From the time when deliveries under the GSA began, transportation of gas through the Pipeline was undertaken by PTL (as carrier) pursuant to a contractual arrangement with BGTL (as shipper). The terms of this arrangement were originally contained in a Transportation Agreement dated 6 September 1996; since October 2001 they have been contained in a Transportation Code ("the Code"), which sets the terms applicable to all shippers using the Pipeline.


The present dispute concerns the extent of Centrica's ability to recover the costs of transporting gas under the GSA from PPL. The Claimants seek to charge PPL under the GSA for two sets of charges. I explain these charges in more detail below, but, for the purposes of this introduction, they can be summarised as follows:

i) "Balancing and Scheduling Charges": these are charges which are imposed by the operator of the Pipeline, PTL, as a result of the terms of the Code, upon BGTL/Centrica for the use of the Pipeline from October 2001; the amount claimed in the Amended Particulars of Claim up until March 2006 in respect of this item was £3,196,449.35 together with future sums alleged to be accruing due for the remaining duration of the GSA; and

ii) "Monthly Postalised Payments" ("MPP"): the MPP are the basis upon which PTL has charged BGTL/Centrica for the use of the Pipeline following the introduction in Northern Ireland in October 2004 of a new system for charging in respect of gas transportation, known as "Postalisation" or "the Postalised System"; the aim of this system (the name of which was no doubt inspired by the philosophy of the postage stamp) was to ensure that all shippers of gas into Northern Ireland paid a common tariff for the shipment of gas, irrespective of the location of their ultimate customers and such customers' proximity to the point of arrival of the gas into Northern Ireland; the amount claimed in the Amended Particulars of Claim up until March 2006 in respect of this item was £25,823,154.29, together with future sums alleged to be accruing due for the remaining duration of the GSA.



There are three principal issues which I have to determine:

i) Are BGTL/Centrica entitled, as a matter of construction of the GSA, to pass on to PPL the Balancing and Scheduling Charges and the MPP under the charging provisions of the GSA?

ii) If BGTL/Centrica are not entitled, as a matter of construction, to charge PPL for these items, are BGTL/Centrica entitled to exercise a provision in the GSA that allows for limited unilateral variations to be made to the terms of the GSA by BGTL/Centrica in certain defined circumstances?

iii) If BGTL/Centrica, are not entitled, as a matter of construction, to charge PPL for these items (whether under the existing charging provisions of the GSA, or as varied), has an estoppel by convention arisen as to the meaning of the charging provisions in the GSA, such that BGTL/Centrica are entitled to proceed to charge PPL on the basis of a common assumption, both in respect of the past and in respect of the future, that such charges are recoverable?

Factual background and relevant contractual provisions


It is necessary to rehearse the factual background to the dispute and the terms of the relevant agreements in some detail for the purposes of both the construction arguments and the estoppel arguments.

(a) British Gas bid for the acquisition of Ballylumford Power Station


The GSA came about as a result of the implementation of plans by the UK Government to privatise the electricity supply industry in Northern Ireland. Prior to privatisation, the generation and supply of electricity in Northern Ireland was owned by Northern Ireland Electricity Service. Northern Ireland Electricity Service was privatised in June 1993 when it became Northern Ireland Electricity plc ("NIE"). (Hereafter I refer to both Northern Ireland Electricity Service and Northern Ireland Electricity plc as NIE.)


NIE was the owner of a number of generating companies including Ballylumford Power Limited, the former name of PPL, which in turn owned the Ballylumford power station. In 1992, there was no supply of natural gas to Northern Ireland and Ballylumford power station was oil fired. In October 1991 British Gas submitted a bid to the UK Government (Department of Economic Development for Northern Ireland) for the acquisition of the shares in Ballylumford Power Limited, through which British Gas would acquire indirect ownership of Ballylumford power station. In its bid document, British Gas made a number of proposals: first, to convert the power station so that it could use natural gas as well as heavy fuel oil; secondly, to supply gas to the power station; thirdly, to construct the Pipeline from Scotland to Northern Ireland in order to bring gas to Northern Ireland. The intention was to connect to the NTS at Moffat, but since there was the existing pipeline between Moffat and Twynholm, owned by BGE, it was only necessary for the new Pipeline to be constructed from Twynholm.


Following a six month period of negotiation, British Gas' bid was successful. The PPL sale and purchase agreement was entered into on 6 March 1992 and completion took place by 1 April 1992. Ballylumford Power Limited was renamed Premier Power Limited after it was acquired by British Gas.

(b) The GSA


As I have already stated, the GSA was entered into on 1 April 1992, the parties to the agreement then being British Gas as seller and PPL as buyer. The form which the GSA took was that of a long term interruptible supply agreement, namely a LTI. For gas supplies within Great Britain, British Gas was obliged to offer standard terms of supply, which it did by offering standard LTI pricing schedules (representing the commodity price and the price of gas transport within Great Britain). At the time when the GSA was entered into, there was very high demand for gas supply in Great Britain. As demand increased, British Gas revised the pricing of the LTIs so as to continue to be in a position to meet the demand on gas. This resulted in successive revisions to the LTI schedules. The schedule current at the time of the GSA was LTI3. British Gas was not statutorily obliged to offer LTI3 terms outside Great Britain but decided to bid for the GSA on a basis that incorporated standard LTI3 terms. However, it was common ground that the capital cost of constructing the Pipeline and the costs of operating it were expressly anticipated by the GSA, and that, although the GSA was based on the standard British Gas LTI3 take or pay contract, it included a specially negotiated annex (Annex 5) relating to Transmission Charges. The Annex 5 Transmission Charges were defined by reference to the capital and...

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